‘Observation care’ woes continue

By Anne Tergesen

When in the hospital, some patients aren’t really there. That seems to be the message behind observation care, a status under which a growing number of hospitalized patients are held for observation—sometimes for a day or longer—to determine whether they really require an inpatient stay.

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Uncovered drugs often contribute to outpatient costs.

As a column I wrote for the Wall Street Journal last Sunday points out, observation care can pose problems for Medicare patients, by exposing them to unexpected expenses. Here’s why:

· As outpatients, their visits aren’t covered under Medicare Part A, which pays for hospital charges above a $1,184 deductible. Instead, outpatient services are billed under Medicare Part B, which requires patients to pay 20% of the cost and imposes no cap on their total expenditures.

· Observation patients pay out-of-pocket for the medication they receive in the hospital. While those with Medicare Part D prescription-drug plans can file claims for reimbursement, they stand to receive little or no refund if their Part D plan doesn’t cover the medications they took or include the hospital in its network.

According to a report the Department of Health and Human Services’ Office of Inspector General released in July, for 6% of observation stays in 2012, patients paid more than the $1,184 Part A deductible.

But that’s not all. Upon discharge, observation patients can get hit with big bills for rehabilitation care. While Medicare pays for up to 20 days of rehabilitation at a skilled-nursing facility, a patient must spend three consecutive nights in the hospital as an inpatient to qualify. In 2012, a total of 17,702 hospital stays of three or more nights failed to qualify because some or all of that time was on observation status. (Rules for Medicare Advantage vary by plan.)

Consumer advocates were hopeful that lawmakers and regulators would curtail the use of observation care. But a bill in Congress with bipartisan support that would allow patients who spend time in the hospital to qualify for Medicare reimbursement for nursing-home care, no matter how they are classified, is given virtually no chance of passage by govtrack.us, which tracks bills in Congress.

And many consumer advocates view with skepticism the claims of Medicare’s administrator, the Centers for Medicare and Medicaid Services, that a new rule that went into effect on Oct. 1 will reduce the number of lengthy observation stays. According to the rule, anyone in the hospital for more than 48 hours would be classified as an inpatient.

Judith Stein, the director of the nonprofit Center for Medicare Advocacy—which filed a recently dismissed lawsuit seeking to end the practice—told me last summer that in her view, the use of observation status effectively shifts costs for nursing home care from the Medicare program to states and individuals.

Many people, she adds, “cannot afford (rehabilitation services in a skilled nursing home) and go without care.”

Stein says the new CMS rule still leaves patients vulnerable. “People could be in the hospital for up to two days and still be considered an outpatient,” she notes. “That’s not a solution.”

In recent years, the use of observation care has grown as regulators penalize hospitals for admitting patients that auditors say should receive outpatient care.

From 2004 to 2011, the number of observation services administered per Medicare beneficiary rose by almost 34%, according to the Medicare Payment Advisory Commission, while admissions per beneficiary declined 7.8%.

Medicare advises patients to ask doctors whether they are considered inpatient or outpatient. Those told that they’re considered under observation can talk to their doctor and hospital staff about the reason—particularly if the stay is longer than a couple of days. “Try to get that decision reversed while you’re still there,” says Toby Edelman of the Center for Medicare Advocacy.

CMS said beneficiaries can appeal if they feel their hospital stays are misclassified as outpatient visits. To do this, they would use the information in their quarterly Medicare Summary Notice to appeal both their hospital stays and any nursing home bills they incurred. There are several more levels of appeal if the first one is denied, however, and the entire process can take months or even years, consumer advocates say.

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Encore looks at the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities, needs and priorities of people saving for and living in retirement. Our lead blogger is editor Matthew Heimer, and frequent contributors include editor Amy Hoak, writer Catey Hill, and MarketWatch columnists Elizabeth O’Brien, Robert Powell and Andrea Coombes. Encore also features regular commentary from The Wall Street Journal retirement columnists Glenn Ruffenach and Anne Tergesen and the Director of the Center for Retirement Research at Boston College, Alicia H. Munnell.